Comparative Financial Analysis Project: Sainsbury vs. Morrison PLC

This project report provides a comparative financial analysis of Sainsbury PLC and Morrison Supermarket PLC. It begins with an introduction, outlining the aims and objectives of evaluating the companies' financial positions, growth, and investment potential, along with the limitations of the study. The report offers company overviews, detailing their market positions, store networks, and key financial figures. A significant portion is dedicated to financial analysis, employing ratio analysis to assess profitability (net margin, return on equity), liquidity (current ratio, quick ratio), efficiency (receivable turnover, payable turnover, asset turnover), and solvency (debt to equity, debt to asset) ratios. The analysis covers data from 2015 to 2017, providing insights into each company's financial health and performance trends. The report concludes with findings, a summary, recommendations regarding investment, and references to support the analysis. The report aims to provide stakeholders with information on the company's financial performance.

Running Head: Accounting
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Project Report: Accounting

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Contents
Introduction.......................................................................................................................3
Aims and objectives......................................................................................................3
Limitations....................................................................................................................3
Company overview.......................................................................................................3
Sainsbury plc............................................................................................................3
Morrison supermarket plc.........................................................................................4
Financial analysis..............................................................................................................4
Ratio analysis................................................................................................................4
Other financial and non financial analysis........................................................................9
Findings and summary....................................................................................................10
Recommendation and conclusion...................................................................................10
References.......................................................................................................................11
Appendix.........................................................................................................................13

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Introduction:
The report explains about the two companies and their current position in the market.
It takes the concern of Sainsbury plc and Morrison supermarket plc. The report explains that
which company is operating its business in better way and what is the investment position of
both the companies. The performance has been evaluated by investigating over the financial
and non financial factors of the company.
Aims and objectives:
The main aims and objectives of this report are as follows:
 To evaluate the financial position of the companies
 To determine the growth and the changes in the organizations
 To track the changes into the financial statement
 To provide information to the stakeholders of the company
 To evaluate the assets, liabilities, cash flow, revenue turnover and owner’s equity
 To provide recommendation about the investment
Above are few aims and objectives of the report.
Limitations:
The report has been prepared with the help of annual reports, figures and current
trends of the company. Though, there are few limitations of the report paper, which are as
follows:
 Less time period
 Lack of reliable data
 Lack of prior research on the topic
 Self reported evaluation
 Less know-how about the evaluation
Above are few limitations of the report paper.
Company overview:

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Sainsbury plc:
Sainsbury plc has been awarded as second largest supermarket chain in UK market.
The company has 16.9% share in the supermarket sector. Company has been founded in 1869
in London with a shop. The company has around 1415 stores worldwide. The main products
and the services of the company are hypermarket, superstore, convenience, forecourt store,
supermarket etc. the main operations of the company is to offer grocery, toiletry, daily use
products to the customers through its super market. The current scenario of the company
explains that the total num of employees of the company are 162700, operating income of the
company is £ 707 million and the total revenue of the company is £ 23.50 billion in 2016. It
explains about a better position of the company in the industry (Sainsbury, 2018).
Morrison supermarket plc:
Morrison supermarket plc has been awarded as fourth largest supermarket chain in
UK market. The company has 8.7% share in the supermarket sector. Company has been
founded in 1899 in England at Rawson market. The company has around 498 stores
worldwide. The main operations of the company are to offer grocery, toiletry and daily use
products to the customers through its super market. The main products and the services of the
company are superstore, forecourt store, hypermarket, supermarket etc (Morrison, 2018). The
current scenario of the company explains that the total num of employees of the company are
132000, operating income of the company is £ 468 million and the total revenue of the
company is £ 16,317 million in 2017. It explains about a better position of the company in the
industry.
Financial analysis:
Financial analysis is a process to determine the various financial related entities of a
business such as budgets, new investments, projects, businesses etc to analyze the
sustainability and the performance of the business. The financial ratios calculate and measure
the financial statement of an organization in order to make a decision about the investment in
the company (Horngren, 2009). For evaluating and analyzing the financial statement, income
statement, cash flow statement and balance sheet of the company, ratio analysis study has
been conducted. Following is the study of ratio analysis of Sainsbury and Morrison
supermarket plc:
Ratio analysis:

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Profitability ratio:
Profitability ratio of an organization explains about the ability of a company to
generate the profits from its functions and the business. It focuses on the return on
investment, net profit and other assets of the company (Damodaran, 2011). In the report, net
margin and return on equity of the companies have been evaluated to identify the capabilities
of the company and the profit position of the business to make it easier for the stakeholder to
make a decision about the company.
Profitability ratio of Sainsbury plc has been evaluated firstly and it has been found
that the current net margin of the company is 1.47 which has been lowered by 0.39 from last
year. It explains about decrement of profit of the company. Further, the return on equity of
the comapny explains that the ratio of the comapny is 7.6, 8.81 and -4.71 in 2017, 2016 and
2015 respectively. It explains that the position of the comapny has been lowered in 2017.
Profitability 2017 2016 2015
Net margin
Net
profit/revenues 1.47 1.75 -0.88
Return on
equity
Net
profit/Equity 7.60 8.81 -4.71
Further, profitability ratio of Morrison supermarket plc has been evaluated and it has
been found that the current net margin of the company is 1.99 which has been higher by 0.49
from last year. It explains about increment of profit of the company. Further, the return on
equity of the comapny explains that the ratio of the comapny is 8, 5.78 and -22.04 in 2017,
2016 and 2015 respectively. It explains that the position of the comapny has been better in
2017.
Profitability 2017 2016 2015
Net margin
Net
profit/revenues
1.99 1.35 -4.71
Return on
equity
Net
profit/Equity
8.00 5.78 -22.04

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Liquidity ratio:
Liquidity ratio of an organization explains about the capability of a business to pay off
all its short term debt through its short term assets. It focuses on the current assets, quick
assets and current liabilities of the company (Damodaran, 2011). In the report, current ratio
and quick ratio of the companies have been evaluated to identify the capabilities of the
company and the liquid position of the business to make it easier for the stakeholder to make
a decision about the company.
Liquidity ratio of Sainsbury plc has been analyzed firstly and it has been evaluated
that the current ratio position of the company is 0.49 which has been higher from 0.02 from
last year. It explains about positive changes into the liquid position of the business. Further,
the quick ratio of the comapny explains that the ratio of the comapny is 0.24, 0.24 and 0.23 in
2017, 2016 and 2015 respectively (Bierman, 2010). It explains that the quick position of the
company is quite similar in last 3 years.
Liquidity 2017 2016 2015
Current
ratio
Current
assets/current
liabilities 0.49 0.47 0.46
Quick
Ratio
Current assets-
Inventory/current
liabilities 0.24 0.24 0.23
Further, liquidity ratio of Morrison supermarket plc has been evaluated and it has
been found that the current ratio of the company is 0.41 which has been lowered from last
year by 0.07. It explains about the bad liquid position of the company. Further, the quick ratio
of the comapny explains that the ratio of the comapny is 0.20, 0.25 and 0.25 in 2017, 2016
and 2015 respectively. It explains that the company is required to make few changes into its
current assets and liabilities to manage the liquid position and short term debt obligation.
Liquidity 2017 2016 2015

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Current
ratio
Current
assets/current
liabilities 0.41 0.48 0.54
Quick
Ratio
Current assets-
Inventory/current
liabilities 0.20 0.25 0.25
Efficiency ratio:
Efficiency ratio of an organization explains about the ability of a company to manage
the assets and liabilities. It focuses on the debtors, creditors, inventory and other assets to
evaluate the working capital and the efficient operations of the company. In the report,
receivable turnover, payable turnover and assets turnover of the companies have been
evaluated to identify the capabilities of the company and the working capital and efficient
position of the company to make it easier for the stakeholder to make a decision about the
company (Besley and Brigham, 2008).
Efficiency ratio of Sainsbury plc has been evaluated and it has been found that the
debtor’s turnover of the company and assets turnover of the company is 1.24 and 3.99 which
have been lower by 0.26 and 0.10 days from last year. It explains about less working capital
requirement of the company. Further, the creditor’s turnover ratio of the comapny explains
that the ratio of the comapny has been higher from last year. It explains that the overall
working capital requirement of the business has been lower and the efficiency of the
company has been enhanced.
Efficiency 2017 2016 2015
Receivables
collection
period
Receivables/
Total
sales*365 1.24 1.5 1.57
Payables
collection
period
Payables/
Cost of
sales*365 33.19 32.79 32.51

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Asset
turnover
ratio
Total sales/
Total assets 3.99 4.09 4.13
Further, efficiency ratio of Morrison supermarket plc has been evaluated and it has
been found that the debtor’s turnover of the company and assets turnover of the company is
3.06 and 2.68 which have been higher by 0.07 and 0.15 days from last year. It explains about
high working capital requirement of the company (Travlos, Trigeorgis and Vafeas, 2015).
Further, the creditor’s turnover ratio of the comapny explains that the ratio of the comapny
has been higher from last year. It explains that the overall working capital requirement of the
company has been lower and the efficiency of the company has been enhanced.
Efficiency 2017 2016 2015
Receivables
collection
period
Receivables/ Total
sales*365 3.06 2.99 3.86
Payables
collection
period
Payables/ Cost of
sales*365 47.56 38.26 30.32
Asset
turnover
ratio
Total sales/ Total
assets 2.68 2.53 2.44
Solvency ratio:
Solvency ratio of an organization explains about the ability of a company to manage
the debt and equity and the optimal capital structure position of the company. It focuses on
the debt, liabilities, equity and the assets of the company (Thanatawee, 2013). In the report,
debt to equity and debt to asset ratio of the companies have been evaluated to identify the
capabilities of the company and the capital structure position of the company to make it
easier for the stakeholder to make a decision about the company.
Lastly, the solvency ratio of both the companies have been evaluated and it has been
found that the capital structure position of Sainsbury is more competitive and the risk of the

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Sainsbury is quite lower as the company has managed the debt, equity and assets according to
the industry ratio (Davies and Crawford, 2011). At the same time, the solvency position of
Morrison supermarket plc has been evaluated and it has been found that the company is also
managing its debt, assets and equity at a better level.
Solvency 2017 2016 2015
Debt to Equity
Ratio (Solvency
ratio liability
based)
Debt/
Equity 46.26 46.70 44.12
Debt to assets
(Solvency ratio
asset based)
Debt/
Total
assets 86.07 87.62 78.95
Solvency 2017 2016 2015
Debt to Equity
Ratio (Solvency
ratio liability
based)
Debt/
Equity 45.38 41.22 39.21
Debt to assets
(Solvency ratio
asset based)
Debt/
Total
assets 83.09 70.11 64.49
Other financial and non financial analysis:
The other financial and non financial factors of both the companies have been
evaluated to identify the factors which has affected the financial performance and the non
financial position of the company. In case of Sainsbury, it has been evaluated that the net
profit of the business has been lowered from last year due to huge investment of the business
on advertisement and packaging (Davies and Crawford, 2011). Further, the competitive
position of the company has also been affected and the company has lose little market share.
The position of profit of both the companies explains that the profitability level of Sainsbury
is quite higher. Gross profit margin of Sainsbury is also higher and the profit per employee is
also higher then Morrison plc (Appendix). The competitive position of the comapny
described that company is required to make new strategic financial decision to enhance the
profitability position and manage the competitive position in the market (Yahoo finance,
2018).

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Further, the stock price of the business has been analyzed and it has been found that
the stock price of the company is quite fluctuating, though; the company’s stock price has
been lowered from last year due to less attraction of the inventors towards the industry and
the company. Though, the Statista (2017) report of grocery market of UK explains that the
Sainsbury is still on the 2nd position in the market. More, it explains that the technological
changes have also taken place in the comapny in last 2 years. It has helped the company to
manage and attract more customers from the market (the guardian, 2018). The advertisement
is also a long term investment which would offer huge return to the stakeholders to the
company (Appendix).
In case of Morrison supermarket plc, it has been evaluated that the company’s net
profit has been enhanced from last year due to less interest expenses and less operating
expenses of the company. Further, the competitive position of the business has been analyzed
and it has been determined that the position of the company is changing rapidly and the
positive changes have arisen into the position of the company. The competitive position of
the comapny described that few more positive changes into the operations and the strategies
of the company would assists the company to be leader in the market.
Further, the stock price of the company has been evaluated and it has been found that
the stock price of the company is quite fluctuating (Appendix). No huge changes have taken
place into the stock price of the company from last year (Yahoo Finance, 2018). Though, the
Statista (2017) report of grocery market of UK explains that the Morrison is still on the 4th
position in the market. More, it explains that the various environmental and economical
changes have affected the position and the performance of the company is last few years.
Findings and summary:
According to the above study and analysis, it has been found that the profitability
position of Morrison supermarket plc is better than the Sainsbury plc. But the other factors of
the companies explain that Sainsbury is performing well in the industry as well as in the
market. The liquid, efficiency and solvency ratios of the comapny explain that the Sainsbury
is maintaining the position according to the industry and thus the associated risk is lower. The
dividend position of both the companies explains that Sainsbury is offering great dividend to
the shareholders.
Recommendation and conclusion:

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To recommended, financial and non financial performance and position of Sainsbury
plc is way better than Morrison supermarket plc. And thus, it explains that the management
of the company is not required to make huge changes into its operations. Further, the
investors are suggested to invest into the Sainsbury plc rather than Morrison plc for short
period as well as long period. On the other hand, less risk is associated with the company and
thus lenders could lend more money and goods to the company.

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References:
Morrison. 2018. Morrison Supermarket plc. [Online]. Available at: https://www.morrisons-
corporate.com/about-us/ [accessed on 12th March 2018].
Besley, S. and Brigham, E.F., 2008. Essentials of managerial finance. Thomson South-
Western.
Bierman, H., 2010. An introduction to accounting and managerial finance: a merger of
equals. World Scientific.
Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc
Graw Hill, New York.
Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Sainsbury. 2018. Sainsbury plc. [Online]. Available at: https://www.sainsburys.co.uk/
[accessed on 12th March 2018].
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education
India.
Statista. 2018. Market share of grocery market. [Online]. Available at:
https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/
[accessed on 12th March 2018].
Thanatawee, Y., 2013. Ownership structure and dividend policy: Evidence from Thailand.
The guardian. 2018. Sainsbury plc. [Online]. Available at:
https://www.theguardian.com/business/2018/jan/23/sainsburys-to-axe-thousands-of-store-
management-roles [accessed on 12th March 2018].
Travlos, N.G., Trigeorgis, L. and Vafeas, N., 2015. Shareholder wealth effects of dividend
policy changes in an emerging stock market: The case of Cyprus.
Yahoo finance. 2018. Morrison Supermarket plc. [Online]. Available at:
https://finance.yahoo.com/quote/MRW.L/history?